Could Competition Fix Small Business' Health Insurance Woes?

There’s a crucial point for small businesses in a story up today by BW’s Cathy Arnst about competition in the health insurance market:

[The Government Accountability Office] found that, for small group coverage, the largest insurer in a state has on average 43% of the market, up from 33% in 2002. In nine states the largest carrier has more than 50% of the market. “There is obviously a need for more competition in this market,” says Karen Davis, president of the nonprofit Commonwealth Fund, which does research on health-care issues.

The industry itself doesn’t see it that way. Insurers argue that, with some 1,300 companies in the business, it can be cutthroat. “It doesn’t feel like the market is not competitive to us,” says Bradley Fluegel, chief strategy officer for WellPoint (WLP), the nation’s largest insurer.

The benefits of healthy competition, however, are hard to spot. Between 2000 and 2007, annual increases in premiums averaged around 9%, while health-care spending increased only 6.7%. Over the past 10 years health insurance premiums have increased 120%, compared to cumulative inflation of 44% and cumulative wage growth of 29% over the same period, according to a Henry J. Kaiser Family Foundation survey.

The GAO’s latest report shows that competition in the small group market (policies for companies with fewer than 50 employees) has diminished. In most states (34 of 39 where data is available), the top five carriers owned at least three-quarters of the small group market. That was true in only 19 states in 2002.

I want to dig into this more, and I’d like your help. If you’re a small business owner, tell us what shopping for insurance is like in your state. Does the market seem competitive to you? How does it compare to shopping for other business services, like payroll? What reforms would you like to see — a public option? More private competition? The ability to shop for insurance across state lines?

Let me know in comments or on Twitter.

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